Financing is the major hurdle every new entrepreneur faces time and time again. You've got a great business idea. But how the heck do you get it off the ground? Should you go to the bank for a loan? Here is how finance for your works.
Traditional Banks and SBA Loans
Loans from bank loans and SPAs are generally a difficult and very slow method of financing your business. To get an SBA loan for your startup, you'll generally need a high net worth, real estate with assets that could be used as a guarantor for the loan, an airtight business plan and a credit score above 700. If you meet all these qualifications, you are likely a good fit for the Small Business Administration's Community Advantage Program and microloan program. You may qualify for a higher loan if you can show that your business will be using clean energy. Proof of previous solar financing is one way of showing that you run an eco-friendly business.
The SBA's Community Advantage program lends your startup up to $250,000 and The microloan program lends money to a tune of $50,000. Entrepreneurs who qualify for these programs have invested at least 30% of their own money in the business and have relevant management and industry experience.
Rollover for Business Startups
The best kept secret for funding a business is a rollover for business startups. Rollovers like to invest funds from your retirement account into your new business without paying early withdrawal penalties or income taxes. Essentially, you're buying stock in your company with funds from your 401K and holding that stock inside your retirement account.
Home Equity Loans and Lines of Credit
Did you know home equity loans and lines of credit are used by 25% of US small business owners to fund their business? That's because home equity lines and lines of credit allow you to leverage the equity in your home to borrow money for your business. Because the loan is backed by your home, this is generally the lowest interest rate financing option options for businesses. These loans are best for those who own more than 15% of their homes and have a credit score above 620.
37% of small business owners use credit cards to finance their business. Credit cards gives you more financial options than other forms of finance. Plus, you could earn cash back rewards when you charge purchases to the card. That's basically free money. However, using credit cards to finance your business can be tricky.
Micro Loans From Non Profit Lenders Nonprofit
Lenders are mission based organizations that give out loans to people from disadvantaged communities. These are great for startup business owners who don't have great credit or a lot of other options. To get a micro loan, you should be prepared to have a co-signer or show a significant source of income independent of your business, like formal employment or spousal income.
Before Kickstarter and Fundible financing options invaded your Facebook feed, P2P loans were the way to get funding from strangers. Peer to peer lenders enable you to go online, fill out an application form and then get financing from willing investors. If you qualify, you can get up to $50,000 in just two weeks. Now, getting a peer-to-peer loan depends entirely on the state of your personal finances and credit score. If your credit score is above 700, you should consider a peer-to-peer loan.
Borrow Money From Friends and Family
Family members and friends who like your project idea may be willing to lend you funds. Sure, it may feel awkward, but you can put their doubts at ease with a stellar business plan and a promissory note. The promissory note is a legal document that business owners sign to formalize borrowing money from their friends or family.
Crowdfunding has become one of the most popular ways to fund a business. Debt free crowdfunding is when you focus on raising small amounts of money from a large number of people. Platforms like Fundable, Kickstarter, Indiegogo and RocketHub connects entrepreneurs products with the world. Crowdfunding is ideal for business that have visually attractive products.
Angel Investors and Venture Capitalists
Angel investors are individuals who are willing to finance your business while venture capitalists are firms that specialize in financing startups. With both angel investors and capital venture capital, you could easily raise money to finance your startup. If you have a solid business plan with financial projections and you're confident that your business can provide a 10 times return on investment, angel investors and venture capital might be right for you.
Hopefully, you’ll want to move forward with any of the financing methods discussed above. Getting the right financing will go a long way in helping your business achieve its goals.